nep-int New Economics Papers
on International Trade
Issue of 2010‒07‒10
twenty papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China By Ana Fernandes; Heiwai Tang
  2. Multilateral Trade Liberalisation, Foreign Direct Investment and the Volume of World Trade By Collie, David R.
  3. Trade Liberalization and Heterogeneous Firm Models: An Evaluation Using the Canada - US Free Trade Agreement By Holger Breinlich; Alejandro Cuñat
  4. Intra-Firm Trade and Product Contractibility (Long Version) By Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
  5. Completing the EU Customs Union. The Effects of Trade Procedure Harmonization By Bourdet, Yves; Persson, Maria
  6. Agricultural and food trade in European Union countries, 1963‐2000:a gravity equation approach By Raúl Serrano; Vicente Pinilla
  7. Wholesalers and Retailers in U.S. Trade (Long Version) By Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
  8. Sequential Exporting By Facundo Albornoz; Hector Calvo-Pardo; Gregory Corcos; Emanuel Ornelas
  9. Service Outsourcing and Specialization: A Theory on Endogeneous Task Scope By Akerman, Anders; Py, Loriane
  10. The Political Economy of Protection By Wilfred J. Ethier
  11. Export Market Dynamics and Plant-level Productivity: Impact of Tariff Reductions and Exchange Rate Cycles By Baldwin, John R.; Yan, Beiling
  12. Are Preferential Tariffs Utilized? Evidence from Australian Imports, 2000-9 By Richard Pomfret; Uwe Kaufmann; Christopher Findlay
  13. The Emulator Effect of the Uruguay Round on US Regionalism. By Marco Fugazza; Frédéric Robert-Nicoud
  14. Home Firm Performance after Foreign Investments and Divestitures By Dirk Engel; Vivien Procher
  15. How Would an Appreciation of the Yuan Affect the People's Republic of China's Surplus in Processing Trade? By Willem Thorbecke
  16. Currency Unions in Prospect and Retrospect By J. M. C. Santos Silva; Silvana Tenreyro
  17. U.S. antidumping: much ado about zeroing By Bown, Chad P.; Prusa, Thomas J.
  18. Milestones of European Integration: Which matters most for Export Openness? By Robinson Kruse; Sanne Hiller
  19. Markups, bargaining power and offshoring: an empirical assessment By Moreno, L; Rodríguez , D
  20. The Structure of Tariffs and Long-Term Growth By Nathan Nunn; Daniel Trefler

  1. By: Ana Fernandes; Heiwai Tang
    Abstract: Using detailed product-level export data for China and a variant of the Antràs and Helpman (2004)model that includes investments in component search, we examine the sectoral determinants offoreign direct investment (FDI) versus foreign outsourcing in export processing trade. We exploit thecoexistence of two regulatory export processing regimes in China, which specify who owns andcontrols the imported components for export processing. We find that in the regime that Chineseplants own the imported components, the share of exports from vertically integrated plants isincreasing in the intensity of headquarter inputs across sectors, and is decreasing in the contractibilityof inputs. These results are consistent with the property- rights theory of intra-firm trade. However, inthe regime that foreign firms own the imported components, no significant relationship is foundbetween the prevalence of vertical integration, headquarter intensity and input contractibility acrosssectors. The positive relationship between productivity dispersion and the export share of integratedplants across sectors, as suggested by the existing literature, is found only in the regime that foreignfirms own the imported components. These results are consistent with our model, which considersownership of imported components as an alternative to asset ownership to alleviate the hold-upproblem by the export-processing plant.
    Keywords: Intrafirm trade, vertical integration, export processing, outsourcing
    JEL: F14 F23 L14 L33
    Date: 2010–05
  2. By: Collie, David R. (Cardiff Business School)
    Abstract: A paradox in international trade is that multilateral trade liberalisation has resulted in increases in both the volume of world trade and the amount of foreign direct investment (FDI). This note presents a Cournot duopoly model with two regions, each consisting of two countries, and with an inter-regional transport cost. It is shown that multilateral trade liberalisation may lead firms to switch from exporting to undertaking export-platform FDI when the interregional transport cost is high. Also, when the inter-regional transport cost is high, the switch to FDI leads to an increase in the volume of world trade in this industry.
    Keywords: Trade Liberalisation; Foreign Direct Investment; Cournot oligopoly
    JEL: F12 F13 F23
    Date: 2010–06
  3. By: Holger Breinlich; Alejandro Cuñat
    Abstract: We examine the qualitative and quantitative predictions of a heterogeneous firm model à laMelitz (2003) in the context of the Canada - US Free Trade Agreement (CUSFTA) of 1989.We calibrate our model to the pre-trade liberalization stage, simulate the trade liberalization,and compute the resulting growth rates of Canadian industry productivity, exports andimports. We compare them with Trefler's (2004) estimates of the effects of CUSFTA. Ourresults show that our model performs well in replicating the qualitative aspects of Trefler'sresults. In particular, we correctly predict that US tariff cuts have smaller productivityenhancing effects than Canadian tariff reductions due to the entry of less efficient exporters.Quantitatively, the model tends to underpredict the impact of CUSFTA on growth rates ofproductivity, but overpredicts the increase in Canadian exports and imports. We discuss howliberalization-induced changes in the firm-level productivity distribution can reconcile themodel with the evidence.
    Keywords: Heterogeneous firm models, trade liberalization, CUSFTA, empirical evaluation
    JEL: F12 F13 F15
    Date: 2010–05
  4. By: Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
    Abstract: This paper examines the determinants of intra-firm trade in U.S. imports using detailed countryproductdata. We create a new measure of product contractibility based on the degree ofintermediation in international trade for the product. We find important roles for the interaction ofcountry and product characteristics in determining intra-firm trade shares. Intra-firm trade is high forproducts with low levels of contractability sourced from countries with weak governance, for skillintensiveproducts from skill-scarce countries, and for capital-intensive products from capitalabundantcountries.
    Keywords: Related party trade, imports, contract theory, contractibility, intermedication, humancapital, physical capital
    JEL: F10 F23 L14 L23
    Date: 2010–05
  5. By: Bourdet, Yves (Department of Economics, Lund University); Persson, Maria (Department of Economics, Lund University)
    Abstract: A main component of customs unions is a common trade policy on imports from non-member countries. Trade policy covers both tariff and non-tariff barriers like trade procedures. We argue that since trade procedures vary markedly across EU countries, the EU is not, strictly speaking, a customs union. To illustrate this, we estimate the impact of trade procedures on exports from non-EU countries and find a highly statistically significant and negative effect. Simulating what the effects would be of harmonizing trade procedures, i.e. to actually complete the EU customs union, we find that aggregated exports to the EU would increase by 20 percent for the average exporter.
    Keywords: Customs Union; European Union; Time Delays; Trade Facilitation; Trade Procedures
    JEL: C23 F15 O24
    Date: 2010–06–24
  6. By: Raúl Serrano (Department of Business Administration, Facutad de Ciencias Económicas y Empresariales, Universidad de Zaragoza); Vicente Pinilla (Department of Applied Economics, Facutad de Ciencias Económicas y Empresariales, Universidad de Zaragoza)
    Abstract: The proliferation of regional trade agreements in the last decades of the 20th century has intensified the debate about the different processes of regional integration. This study contributes to this debate by analysing the principal determinants of the growth in trade flows of the countries making up the European Union. The work analyses EU agri‐food trade from a disaggregated perspective, by products, imports and exports, from 1963 to 2000. An extended gravity equation model is estimated employing Prais‐ Weistein estimation and fixed effects in order to improve on the results reported in previous studies. The results of the present study show that in EU countries the growth of per capita income stimulated exports and reduced imports. Specifically, its exports were positively influenced by the presence of the home market effect, while its imports were strongly influenced by the effects of the liberalisation of intra‐EU trade, as also occurred in the case of intra‐EU trade flows.
    Keywords: International Agricultural Trade, Economic History of the European Union, Gravity equation
    JEL: N74 N54 Q F10 F14
    Date: 2010–07
  7. By: Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
    Abstract: International trade models typically assume that producers in one country trade directly with final consumers in another. In reality, of course, trade can involve long chains of potentially independent actors who move goods through wholesale and retail distribution networks. These networks likely affect the magnitude and nature of trade frictions and hence both the pattern of trade and its welfare gains. To promote further understanding of the means by which goods move across borders, this paper examines the extent to which U.S. exports and imports flow through wholesalers and retailers versus .producing and consuming firms.
    Keywords: Wholesaler, retailer, intermediary, international trade
    JEL: F10 F14
    Date: 2010–02
  8. By: Facundo Albornoz; Hector Calvo-Pardo; Gregory Corcos; Emanuel Ornelas
    Abstract: Firms need to incur substantial sunk costs to break in foreign markets, yet many give up exportingshortly after their first experience, which typically involves very small sales. Conversely, other newexporters shoot up their foreign sales and expand to new destinations. We investigate a simpletheoretical mechanism that can rationalize these patterns. A firm discovers its profitability as anexporter only after actually engaging in exporting. The profitability is positively correlated over timeand across foreign destinations. Accordingly, once the firm learns how good it is as an exporter, itadjusts quantities and decides whether to exit and whether to serve new destinations. Thus, it is thepossibility of profitable expansion at both the intensive and extensive margins what makes incurringthe sunk costs to enter a single foreign market worthwhile despite the high failure rates. Using acensus of Argentinean firm-level manufacturing exports from 2002 to 2007, we find empirical supportfor several implications of our proposed mechanism, indicating that the practice of "sequentialexporting" is pervasive. Sequential exporting has broad but subtle implications for trade policy. Forexample, a reduction in trade barriers in a country has delayed entry effects in its own market, whilealso promoting entry in other markets. This trade externality poses challenges for the quantification ofthe effects of trade liberalization programs, while suggesting neglected but critical implications ofinternational trade agreements.
    Keywords: Export dynamics, trade liberalization, experimentation, uncertainty
    JEL: F10 D21 F13
    Date: 2010–03
  9. By: Akerman, Anders (Dept. of Economics, Stockholm University); Py, Loriane (Paris School of Economics and Stockholm University)
    Abstract: We develop a model of outsourcing and trade in service inputs where the scope of tasks produced by both manufacturing firms and service providers is endogeneous. Manufacturing firms have to perform a fixed set of tasks in order to produce their final good but can decide to outsource some of these tasks to service providers, which, contrary to manufacturers, have the possibility to sell tasks to different manufacturers and thereby benefit from economies of scale in their task production. The key assumption is that the marginal cost of a firm (manufacturer or service provider) increases in the scope of tasks performed inside the firm: a firm which specializes in a narrow scope of tasks is more productive. Working against this incentive to produce as few tasks as possible "inhouse" is a fixed cost paid by each firm. The model yields several new predictions about trade liberalization and welfare as measured by aggregate productivity. An increase in the size of an economy raises the scale of all firms, facilitates greater specialization and therefore raises each firm's productivity. The model therefore generates gains from trade or larger market size through a "specialization effect" as opposed to the classical "variety effect" usually generated by models building on Dixit Stiglitz utility structures. Welfare increases due to adjustments in task scope allowed by the emergence of specialized service firms. Detailed Swedish data on what tasks (or occupations) are performed by workers is used to test this prediction. Indeed,we find that manufacturing firms in larger cities (controlling for firm size) perform fewer tasks inhouse than firms in smaller cities.
    Keywords: service outsourcing; division of labour; productivity; specialization
    JEL: F10 F43 L24
    Date: 2010–06–30
  10. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: This paper offers a selective, interpretative survey of the literature on the political economy of international trade policy. Unilateral trade policy and multilateral trade agreements are covered, but preferential trading arrangements are not. Much of the literature is characterized either by a discrepancy between what policymakers say they are doing and how the theory models their actions (the Cognitive Dissonance issue) or by a lack of a detailed microeconomic foundation (the Black Box issue).
    Keywords: Political support function, Protection For Sale, trade agreements, exchange of market access
    JEL: F02 F13
    Date: 2010–06–30
  11. By: Baldwin, John R.; Yan, Beiling
    Abstract: This paper examines how trade liberalization and fluctuations in real exchange rates affect export-market entry/exit and plant-level productivity. It uses the experience of Canadian manufacturing plants over three separate periods that featuring different rates of bilateral tariff reduction and differing movements in bilateral real exchange rates. The patterns of entry and exit responses as well as the productivity outcomes differ markedly in the three periods. Consistent with much of the recent literature, the paper finds that plants self-select into export markets-that is, more efficient plants are more likely to enter and less likely to exit export markets. The reverse also occurs: entrants to export markets improve their productivity performance relative to the population from which they originated and plants that stay in export markets do better than comparable plants that exited, lending support to the thesis that exporting boosts productivity. Finally, we find that overall market access conditions, including real exchange rate trends, significantly affect the extent of productivity gains to be derived from participating in export markets. In particular, the increase in the value of the Canadian dollar during the post-2002 period almost completely offset the productivity growth advantages that new export-market participants would otherwise have enjoyed.
    Keywords: International trade, Business performance and ownership, Economic accounts, Business adaptation and adjustment, Productivity accounts
    Date: 2010–06–25
  12. By: Richard Pomfret (School of Economics, University of Adelaide); Uwe Kaufmann (School of Economics, University of Adelaide); Christopher Findlay (School of Economics, University of Adelaide)
    Abstract: Preferential tariff rates are often not utilized by qualified beneficiaries. Two reasons are complex rules of origin and erosion of preference margins as a result of multilateral trade liberalization. Our paper contributes to this research by providing evidence from high-quality disaggregated customs data of the utilization rate for Australia's preferential trading arrangements in the period 2000-9. A pattern of low ratios of imports receiving preferential tariff treatment to the total value of bilateral imports applies to all six of Australia's PTAs. Over half of Australian imports from New Zealand, the Pacific Island Forum economies, Thailand and Chile claimed preferential treatment in 2000, but all had lower utilization rates by 2009. This is primarily because of the increasing number of zero MFN tariff lines. Where MFN tariffs are positive, preferential tariffs are utilized and preferred trading partners pay lower customs duties. Positive utilization rates indicate that tariff preferences do have an impact, and at a minimum the exporters claiming the preferential tariff rate are better off than they would be in its absence, but by themselves utilization rates shed no light on the size of the impact on trade flows or on economic wellbeing.
    Keywords: preferential tariffs, trade liberalization, preference erosion
    JEL: F13 F15 F53
    Date: 2010–07
  13. By: Marco Fugazza; Frédéric Robert-Nicoud
    Abstract: Using a detailed data set at the tariff line level, we find an emulator effect of multilateralismon subsequent regional trade agreements involving the US. We exploit the variation in thefrequency with which the US has granted immediate duty free access (IDA) to its Free TradeArea partners across tariff lines. A key finding is that the US has granted IDA statusespecially on goods for which it had cut the multilateral MFN tariff during the Uruguayround the most. Thus, the Uruguay Round (multilateral) 'concessions' have emulatedsubsequent (preferential) trade liberalisation. We conclude from this that past liberalisationsows the seeds of future liberalisation and that multilateral and preferential trade agreementsare dynamic complements.
    Keywords: Regionalism, multilateralism, stumbling bloc, Uruguay round
    JEL: F13 F14 F15 N70
    Date: 2010–03
  14. By: Dirk Engel; Vivien Procher
    Abstract: ‘Being international’ has nearly become an undisputed aim for firms in a globalized world. Several papers find a positive relationship between foreign direct investment (FDI) and the home performance of firms. In this paper we address the “FDI – export” relationship to better understand this pattern. Furthermore, by presenting first results on firm’s post-divestiture employment growth at home we are able to provide a more comprehensive view on fi rm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference-in-difference estimator to analyze the performance dynamics of French firms that invested abroad or carried out foreign divestitures during the period 2000-2007. FDI has on average a positive home firm eff ect in terms of export share, operating turnover and employment. Industry differences reveal that firms in high-tech industries experience a strong increase in their home performance, whereas firm performance in low-tech industries increases only moderately in post-investment periods. In contrast, the divestiture impact on the post-divestiture performance is rather negligible.
    Keywords: Foreign markets; entry and exit; firm performance
    JEL: F21 F23 D21 L25
    Date: 2010–04
  15. By: Willem Thorbecke
    Abstract: Enormous trade surpluses are problematic for the People’s Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC’s imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC’s surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC’s trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.[ Working Paper 219]
    Keywords: trade surpluses, People’s Republic of China, exchange rate changes, East Asian, environmental regulations, liberalization
    Date: 2010
  16. By: J. M. C. Santos Silva; Silvana Tenreyro
    Abstract: We critically review the recent literature on currency unions, and discuss the methodologicalchallenges posed by the empirical assessment of their costs and benefits. In the process, weprovide evidence on the economic effects of the euro. In particular, and in contrast withestimates of the trade effect of other currency unions, we find that the impact of the euro ontrade has been close to zero. After reviewing the costs and benefits, we conclude with someopen questions on normative and positive aspects of the theory of currency unions,emphasizing the need for a unified welfare-based framework to weigh their costs and gains.
    Keywords: Currency union, Integration, Exchange Rage, Trade
    JEL: F00 F02 F15 F31 F42
    Date: 2010–06
  17. By: Bown, Chad P.; Prusa, Thomas J.
    Abstract: The United States use of"zeroing"in its antidumping procedures has become a political flash point threatening some legitimacy of the WTO's dispute settlement system. This paper provides a positive analysis of the zeroing issue, explains how it has evolved and who is likely to be affected by it. The authors use economic theory to identify how export price volatility accentuates the impact of zeroing on the size of U.S. antidumping tariffs and review the WTO caseload over zeroing. They describe the impact that the U.S.'s retrospective system for assessing antidumping margins has on zeroing and the political economy implications as the U.S. struggles to generate policy reform. The authors survey existing evidence of the impact of the zeroing on dumping margins and contribute their own evidence to suggest that zeroing is just as likely to impact the size of U.S. antidumping duties applied on developing country exportsas developed economy exports. Thus while developed economies have filed the vast majority of WTO disputes against the U.S. over zeroing, the authors conclude that zeroing is also likely a relevant issue for developing country exporters as over 60 percent of the product lines currently subject to U.S. antidumping are exported by developing countries.
    Keywords: Markets and Market Access,Economic Theory&Research,Trade Law,Access to Markets,Emerging Markets
    Date: 2010–06–01
  18. By: Robinson Kruse (Aarhus University, School of Economics and Management, CREATES); Sanne Hiller (Department of Economics, Aarhus School of Business, Aarhus University)
    Abstract: The European integration process has removed barriers to trade within Europe. We analyze which integration step has most profoundly influenced the trending behavior of export openness. We endogenously determine the single most decisive break in the trend, account for strong cross-country heterogeneity and propose a new measure for the strength of trend breaks. Highly open economies gain from both, monetary and real integration. In sharp contrast, less open economies do not benefit from real integration and even suffer from monetary integration. The major milestones for France, Germany, Italy and the Netherlands are the Euro introduction, the Maastricht Treaty, the Exchange Rate Mechanism I and the merge of EFTA and EEC to the European Economic Area, respectively. Our empirical results have important implications for inner-European economic development, as export openness feeds back into growth, unemployment and income convergence.
    Keywords: European Integration; Export Openness; Trends; Structural Breaks
    JEL: C22 F02 F15 F41
    Date: 2010–07–01
  19. By: Moreno, L; Rodríguez , D
    Abstract: This paper tests the pro-competitive effect of imports on product and labour markets for Spanish manufacturing firms in the period 1990-2005. In doing so, it takes into account the type of imported products: final vs intermediate. Markups are estimated following the procedure suggested by Roeger (1995) and including an efficient bargaining model. The observed heterogeneity among firms is parameterized to consider additional product standardization and market concentration. The results support the Imports as Market Discipline hypothesis for importers of final goods, while firms that offshore intermediate inputs show similar markups to non-importers. Additionally, the union bargaining power is smaller the more final-goods oriented imports are and the more homogeneous is the type of goods elaborated by firms.
    Keywords: Markups; offshoring; bargaining power
    JEL: F16 L60
    Date: 2010–04–10
  20. By: Nathan Nunn; Daniel Trefler
    Abstract: We show that the ‘skill-bias’ of a country’s tariff structure is positively correlated with long-term per capita GDP growth. Testing for causal mechanisms, we find evidence consistent with the existence of real benefits from tariffs focused in skill-intensive industries. However, this only accounts for a quarter of the total correlation between skill-biased tariffs and growth. Turning to alternative explanations, we extend the standard Grossman-Helpman ‘protection-for-sale’ model and show how the skill-bias of tariffs can reflect the extent of domestic rent-seeking activities in the economy. We provide evidence that the remaining variation is explained by this endogeneity.[Working Paper No.]
    Keywords: International trade; Tariffs; Political economy of protection; Economic growth.
    Date: 2010

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